Homework Answers
2). Option a is correct. The hedger's position will improve. The hedger has shorted which means selling price is fixed. If basis strengthens (or increases) that means the gap between spot and futures has increased which will benefit the hedger.
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2. The basis is defined as spot minus futures. For a short hedger basis strengthens unexpectedly....
The basis of a futures contract strengthens unexpectedly. Which one of the following statements is true?...
The basis of a futures contract strengthens unexpectedly. Which one of the following statements is true? (a) A short hedger's position improves. (b) A short hedger's position worsens. (C) A short hedger's position sometimes worsens and sometimes improves. (d) A short hedger's position stays the same.
1.Which of the following is not the reason for Basic risk of hedging using futures? a....
1.Which of the following is not the reason for Basic risk of hedging using futures? a. The asset whose price is to be hedge may not be exactly the same as the underlying asset of the futures contract b. The asset whose price is to be hedge may not be exactly the same as the price of the futures contract c. The hedger may not be certain of the exact date the asset will be bought or sold d. The...
1. Which of the following trades implies that ownership has been taken? a. Buying a futures...
1. Which of the following trades implies that ownership has been taken? a. Buying a futures contract. b. Selling a futures contract. c. Buying a stock. d. Shorting a stock. e. None of the above implies ownership. The following transactions are the only ones made during the first 4 days a futures contract trades. Answer question 2 based on this table. DAY TRANSACTION S O 1 A Long 30, B Short 30 2 A Long 55, C Short 55 3...
2. Hedge Using Futures A chemical company expects to buy 500,000 barrels of oil at a...
2. Hedge Using Futures A chemical company expects to buy 500,000 barrels of oil at a spot price one year later. In futures market oil futures are available for delivery one year later and the futures price is $63 per barrel now. One futures contract is for 5,000 barrels of oil. (a) The company wants to hedge the risk of oil price in its payment. Which position and how many contracts does the company need to take? (b) The company...
2. The three-month futures price for the British pound is $1.3160/£. You expect the spot price...
2. The three-month futures price for the British pound is $1.3160/£. You expect the spot price three months from today to be $1.3680/£. The British pound contract size is £62,500. a. If you decide to buy 68 British pound futures contracts, how much money do you need today as your initial investment other than the margin you need to post? b. If you have available $1.4 million to speculate in the futures market as a buyer, how many contracts can...
On 1 January you sold one March maturity S&P/ASX 200 index futures contract at a futures...
On 1 January you sold one March maturity S&P/ASX 200 index futures contract at a futures price of 700. If the futures price is 800 on 1 February, what is your profit? The contract multiplier is $25. In other words, the contract calls for delivery of $25 times the value of index. 1 index point move translates into a $25 change in the value of the contract. a. $100 b. -$100 c. $700 d. $2,500 e. -$2,500 Which one of...
He no ar 7 compound 13. As inventories of a commodity decline, which of the following...
He no ar 7 compound 13. As inventories of a commodity decline, which of the following is true? A. The one-year futures price as a percentage of the spot price increases The one-year futures price as a percentage of the spot price decreases The one-year futures price as a percentage of the spot price stays the same Any of the above can happen C. D. 14. Which of the following is true for a consumption commodity? There is no limit...
2. In this problem you will use SP500 index futures to hedge against risks in your...
2. In this problem you will use SP500 index futures to hedge against risks in your stock portfolio. Note that SP500 index is given by $250 times the futures price. We have the following information SP500 spot price = V:500, 1 = 1000 VAL= Value of your portfolio = 5.05M R = 4% Dividend = 1% Beta = 1.5 FI = 1010 a). This is a cross hedge, how much contract should you short? Each SP500 index futures contract needs...
a)Should a U.S. firm take a long or short position in British Pound futures if it...
a)Should a U.S. firm take a long or short position in British Pound futures if it wants to hedge against payables in British Pound? Explain you answer. b)Should a U.S. firm buy a call option or buy a put option on Japanese Yen if it wants to hedge against receivables in Japanese Yen? Explain your answer. c)What are the main differences between forward/futures vs. options as a hedging tool? d) Assume that the transactions listed in the first column of...
1. Consider the futures contract to buy/sell December gold for $500 per ounce on the New...
1. Consider the futures contract to buy/sell December gold for $500 per ounce on the New York Commodity Exchange (CMX). The contract size is 100 ounces. The initial margin is S3,000, and the maintenance margin is $1,500. 1.a. Suppose that you enter into a long futures contract to buy December for $500 per ounce on the CMX What change in the futures price will lead to a margin call? If you enter a short futures contract, what futures price will...
The basis of a futures contract strengthens unexpectedly. Which one of the following statements is true? (a) A short hedger's position improves. (b) A short hedger's position worsens. (C) A short hedger's position sometimes worsens and sometimes improves. (d) A short hedger's position stays the same.
1. Which of the following trades implies that ownership has been taken? a. Buying a futures contract. b. Selling a futures contract. c. Buying a stock. d. Shorting a stock. e. None of the above implies ownership. The following transactions are the only ones made during the first 4 days a futures contract trades. Answer question 2 based on this table. DAY TRANSACTION S O 1 A Long 30, B Short 30 2 A Long 55, C Short 55 3...
2. Hedge Using Futures A chemical company expects to buy 500,000 barrels of oil at a spot price one year later. In futures market oil futures are available for delivery one year later and the futures price is $63 per barrel now. One futures contract is for 5,000 barrels of oil. (a) The company wants to hedge the risk of oil price in its payment. Which position and how many contracts does the company need to take? (b) The company...
2. The three-month futures price for the British pound is $1.3160/£. You expect the spot price three months from today to be $1.3680/£. The British pound contract size is £62,500. a. If you decide to buy 68 British pound futures contracts, how much money do you need today as your initial investment other than the margin you need to post? b. If you have available $1.4 million to speculate in the futures market as a buyer, how many contracts can...
He no ar 7 compound 13. As inventories of a commodity decline, which of the following is true? A. The one-year futures price as a percentage of the spot price increases The one-year futures price as a percentage of the spot price decreases The one-year futures price as a percentage of the spot price stays the same Any of the above can happen C. D. 14. Which of the following is true for a consumption commodity? There is no limit...
2. In this problem you will use SP500 index futures to hedge against risks in your stock portfolio. Note that SP500 index is given by $250 times the futures price. We have the following information SP500 spot price = V:500, 1 = 1000 VAL= Value of your portfolio = 5.05M R = 4% Dividend = 1% Beta = 1.5 FI = 1010 a). This is a cross hedge, how much contract should you short? Each SP500 index futures contract needs...
1. Consider the futures contract to buy/sell December gold for $500 per ounce on the New York Commodity Exchange (CMX). The contract size is 100 ounces. The initial margin is S3,000, and the maintenance margin is $1,500. 1.a. Suppose that you enter into a long futures contract to buy December for $500 per ounce on the CMX What change in the futures price will lead to a margin call? If you enter a short futures contract, what futures price will...
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